PKR Depreciation, Interest Rates & Real Estate

Before you continue with this article I will request you to read our 2018 real estate forecast. Real estate in Pakistan is one of the biggest and foremost sector where not only expats but also the locals invest. For decades it has formulated the base of our economy and one of the biggest sectors to attract investments. Imlaak has always brought to you a realistic and unbiased analysis which is at least 90% correct in predicting the future.

Real estate is one of the basic economic indicators and is entangled with over all policy financial health of the state. In this article we are going to see how these policies in conjunction with record PKR depreciation of more than 28% will effect real estate sector in the upcoming days.

Following has changed since Dec 2017

PKR has depreciated from 108 to 138 in one year.
Interest rate has been increased to 10% by state bank of Pakistan.
Effect of PKR depreciation on real estate
Depreciation in PKR actually means that real estate has gone down as well in terms of dollar. A plot which has not increased in value in last one year and was available in 50 Lacs or $ 46296 in 2017 Dec is now available in $ 36231. This accounts to a decline of 28% in terms of real estate prices in one year.

Technically even if you have made a profit of 28% on real estate in last one year that means you are actually just at par.

However we are actually looking at a narrow window and if we really want to calculate if $ is a better investment than real estate we may need to make our analysis on a much wider time range.
Ten years PKR vs USD and Real Estate
In Dec of 2008 1 USD was only at 78 against PKR , today it stands at 138. This shows a deprecation of 76% in ten years or 7.6% annually.

In the same time frame real estate sector has given great returns. 1 Kanal file in DHA Lahore 9 Prism was roughly between 13 to 14 Lacs and is now a plot with an average worth of 100 lacs. This shows a significant growth of more than 700%.

It is also important to note that interest rates on foreign currencies has remained very low in last 10 years and would not have given you any significant profits even if you kept that money in a savings account.
Interest Rates
Now coming on to the interest rates hike by the state bank of Pakistan recently. As per the latest interest rates if you keep your money in the bank, you will probably double it in 7 years and grow it 400% in 14 years. That is if you do not take any profits out of it in 14 years.

Like any other investment the interest rates may increase or decrease in coming years and can also significantly effect your profit ratio.

However it is clear that even if the interest rates remain stable, real estate which has offered 700% growth in last 10 years has the promise to offer you at least 1000% growth in next 14 years considering past trends. All you need to do is make the right choice at the right time and we can help you achieve that.